Wages in China are skyrocketing thanks to labor shortages. "Last year salaries surged 40%, to an average of $160 a month," according to BusinessWeek.

In addition to increasing salaries, turnover is sky-high, too; BusinessWeek reported that "turnover in some low-tech industries approaches 50%, according to the Institute of Contemporary Observation, a Shenzhen labor research group."

One company "has upgraded its dormitories and improved the food in the company cafeteria. Despite those efforts, its five factories remain about 10% shy of the 6,000 employees they need," according to BusinessWeek.

There is a shortage of qualified workers in provinces all across China.

"Although the total labor force is about 800 million, relatively few people have the qualifications employers want. For most textile, toy, and tech-assembly jobs, for example, export-oriented manufacturers prefer women from 18 to 25 years old or people with experience operating machinery," according to BusinessWeek.

"Reports of labor shortages first cropped up in late 2004, but companies thought the phenomenon was temporary. Now a surge in both turnover and wage costs is convincing multinationals and their suppliers that the China game is changing permanently," according to BusinessWeek.

While increased productivity has, to some degree, offset rising wages, those productivity increases are getting fewer in number.

Some companies are retreating to China's interior, where land and wages are both cheaper than they are in the major cities on China's coast. But costs are sure to rise there, too, and some companies will simply find themselves squeezed out of the country.